utilize your knowledge of supply/demand analysis and show graphically the impact of a government minimum wage of $6 hour with a market wage for unskilled workers of $7 hour with 1 million workers employed at the market wage.
To illustrate the impact of a government minimum wage of $6 per hour with a market wage for unskilled workers at $7 per hour and 1 million workers employed at the market wage, we can start by understanding the concept of supply and demand analysis.
In a competitive labor market, the supply of labor represents the number of workers willing and able to work at a given wage, while the demand for labor represents the number of workers that businesses are willing and able to hire at that wage. The equilibrium wage, where supply and demand are balanced, is the wage at which the number of workers who want to work is equal to the number of workers that businesses want to hire.
Now, let's analyze the scenario you provided:
1. The market wage for unskilled workers is $7 per hour, and there are 1 million workers employed at this wage. We can represent this on a graph as the initial supply and demand curves intersecting at the $7 wage level with 1 million workers:
Demand
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--------------------------------------------------- $7 (Initial Market Wage)
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Supply
2. When the government imposes a minimum wage of $6 per hour, this creates a price floor below which employers are not allowed to pay their workers. In this case, the minimum wage of $6 per hour is below the initial market wage of $7, so it does not directly impact the equilibrium wage or the number of workers employed. As a result, the supply and demand curves remain unchanged.
Demand
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--------------------------------------------------- $7 (Initial Market Wage)
$6 (Minimum Wage)
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Supply
3. However, the impact of the minimum wage on the labor market can still be observed. As the minimum wage is lower than the market wage, it becomes essentially ineffective since employers are already willing to pay a higher wage ($7 per hour) to attract workers. Therefore, since the minimum wage is not binding, the number of workers employed and the equilibrium wage remain unaffected.
Demand
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--------------------------------------------------- $7 (Initial Market Wage)
$6 (Minimum Wage)
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Supply
In summary, when a government establishes a minimum wage that is lower than the prevailing market wage, it does not have any practical effect since employers are already willing to pay the higher market wage. Therefore, in this scenario, the existence of the $6 minimum wage does not impact the equilibrium wage, the number of workers employed, or the overall labor market.